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Role Swap: When the Follower Leads and the Leader Follows

Author

Listed:
  • Jan Libich

    (La Trobe University and VSB-TU Ostrava)

  • Martin Machacek

    (VSB-TU Ostrava)

  • Dat Thanh Nguyen

    (University of Economics - The University of Danang)

Abstract

The game theoretic literature has commonly explored circumstances in which the players are identical. In the real world, strategic actors such as competing firms or political parties are however heterogeneous. Most importantly, their payoffs across the various possible outcomes generally differ. We consider payoff heterogeneity within a more general ‘Stochastic leadership’ framework. It allows for probabilistic revisions of each player’s initial actions - upon observing what the others have done. The analysis shows that under Stochastic leadership it is the exact payoffs, not just their ranking, that affects the set of (subgame-perfect) equilibria. This is consistent with experimental studies that show payoff heterogeneity to hinder cooperation and aggravate conflict by moving the players away from the focal (symmetric/equitable) outcome. Furthermore, we demonstrate that if the payoffs are sufficiently asymmetric the players may essentially swap their roles in coordination and anti-coordination games. In particular, we derive circumstances within the Battle of the sexes, Stag hunt and Hawk and dove games under which the Stochastic follower (the more flexible player with a higher revision probability) starts behaving as the Stackelberg leader. Our main real-world example is from the area of climate change agreements between major countries.

Suggested Citation

  • Jan Libich & Martin Machacek & Dat Thanh Nguyen, 2021. "Role Swap: When the Follower Leads and the Leader Follows," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 71(4), pages 282-305, December.
  • Handle: RePEc:fau:fauart:v:71:y:2021:i:4:p:282-305
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    File URL: https://journal.fsv.cuni.cz/mag/article/show/id/1491
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    Cited by:

    1. Jan Libich & Dat Thanh Nguyen, 2022. "When a compromise gets compromised by another compromise," Australian Economic Papers, Wiley Blackwell, vol. 61(4), pages 678-716, December.

    More about this item

    Keywords

    heterogeneity; asymmetric payoffs; leadership; climate change; battle of the sexes;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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